Slide 14.1

New-product development and product life-cycle strategies

Chapter 14

Slide 14.2

Introduction: New products

• New products are the lifeblood of the organisation but they are extremely vulnerable and the majority never reach commercialisation.

• In competitive markets, the best and strongest firms sustain growth through the introduction of new products and services to meet the changing needs of the consumers.

Slide 14.3

Introduction: New products

• All products have a finite life span and this is influenced by the type of product, its innovativeness, the management of the product through its life cycle, as well as the markets in which it is sold.

• All products will eventually decline and need to be replaced by new ones and companies need to be adept at adapting marketing strategies to respond to the dynamics of the environment, so as to manage the product through its life cycle effectively.

Jfr utvecklingen inom fotoindustrin (bl.a. Hasselblad)

Slide 14.4

Innovation and new product development

• In business, standing still is not an option. • Unless companies develop new products, their business will inevitably wane and fade. • Innovation is a costly and risky activity. • Some innovations are nothing more than a modification to an existing product range, while others are completely new products – which is the best depends upon the needs of the market. • Success in developing new products is mainly about correctly identifying what those needs are, and translating them efficiently into new products.

Slide 14.5

Innovation and new product development strategy

• Product innovation covers a range of product development activities, including product improvement, development of new products and extensions to product lines.

• Classifications: • New to company, new to market. • New to company, significant innovation to market. • New to company, minor innovation to market.

•

Slide 14.6

Product innovations are not to be confused with inventions

Innovations

– Ideas, services, technologies and products that have been developed and marketed to customers who perceive them as novel or new. – It is a process of creating and delivering new product or service values that did not previously exist in the marketplace.

•

Slide 14.7

Product innovations are not to be confused with inventions

Inventions

– are new technologies or products that may or may not be commercialised and may or may not deliver benefits to customers.

Slide 14.8

Product innovations are not to be confused with inventions

•

New product development

– The development of new brands, original products, product improvements or modifications, through the efforts of the firm’s R&D.

Glöm inte bort serviceinnovation!

Slide 14.9

Risks and returns in new-product development

• About 90% of new products developed fail. • Only 40% of new consumer products that are brought to market will be around 5 years later.

• Risk management essential.

• Research indicates that success depends primarily upon the amount of time and effort a company is prepared to invest in making sure the new product fits its market.

Slide 14.10

Why do new products fail?

• New product development is too expensive • Unexpected delays and time to market too long • Idea good but market overestimated • Insufficient demand for the product or service • Not as well designed as it should have been • Incorrectly positioned • Incorrectly priced • Competitors fight back more aggressively than expected.

Slide 14.11

What influences new product success?

• Development of a unique superior product – Better quality, new features and greater value • Clearly defined market and product concept • Meeting market needs • Senior management commitment • Relentless pursuit of innovation • New product planning • Systematic new product development process

Slide 14.12

9 Steps of new product development

Figure 14.1

Steps in new product development

Slide 14.13

1. Idea generation

• Systematic search for new-product ideas. • In pharmaceutical companies it can take 6000-8000 ideas to produce one commercial success. • Generally only 1 out of 100 new-product ideas will reach their objectives.

• Internal sources • Customers • Competitors • Observing the competition is an excellent source of new product ideas.

• Distributors, suppliers and others

Slide 14.14

DaimlerChrysler’s task is to develop its fuel-cell powered electric car into alternative product concepts, find out how attractive each is to customers and choose the best one.

Source

: © DaimlerChrysler/Liaison Agency. Reproduced with permission.

Slide 14.15

2. Idea screening

• Process of screening the new-product ideas in order to spot good ideas and drop poor ones as soon as possible. • Rigorous evaluation is necessary.

Slide 14.16

3. Concept development and testing

• Product idea converted into a product concept • Converted into meaningful consumer terms of a product image • How the consumers will perceive the product.

• Concept testing is essential to judge the robustness of the new-product concept and ascertain if it will have commercial appeal.

• Consumers may like the idea but would they be prepared to pay for it?

Slide 14.17

Concept development

Slide 14.18

4. Marketing strategy development

• Develop the appropriate marketing strategy • based on the marketing logic by which the business unit hopes to achieve its marketing objectives • outlining the intended target market, product positioning and sales, market and profit share for the first 3-5 years.

Slide 14.19

5. Business analysis

• Review of the sales, costs and profit projections.

• Establish the viability of the project and whether it will satisfy the company’s objectives.

• Explore strategic fit with entire business.

Slide 14.20

6. Product development

• Entails developing the product concept into a physical product in order to ensure that the product idea can be turned into a workable product.

Slide 14.21

7. Test Marketing

• New product tested in realistic market settings: – Standard test markets • Small number of representative test cities / markets, Pilot study • Competitors are able to monitor the project – Controlled test markets • Conducted in conjunction with research firm, Controlled parameters • Competitors are able to monitor the project – Simulated test markets • Simulated environment • Provides measure of trial and commercial effectiveness against competitors – Test marketing new industrial products • Product-use tests, Trade shows • Standard or controlled test market • Distributor and dealer display rooms

Slide 14.22

8. Commercialisation

• If having met the rigours of the prior analysis, the product is then brought to commercialisation, the company needs to decide the following: – When?

– Where?

– To Whom?

– How?

Slide 14.23

9. Organising for new-product development

• Sequential product development slow and many companies encourage the concept of simultaneous product development: – departments work together, overlapping the steps in the product development process so as to save time and increase effectiveness.

• Successful new-product development is based upon an entrenched ethos of innovation within the company that is supported from senior management downwards.

Slide 14.24

Product life-cycle strategies

• Following the launch of the new product, the challenge to management is ensuring that the product achieves its potential over its projected life span. – This involves understanding the product life cycle and developing appropriate marketing strategies and interventions.

Slide 14.25

The product life-cycle

• The product life-cycle (PLC) is the course of a product’s sales and profits over its lifetime. It involves five stages: • Product development • Introduction • Growth • Maturity • Decline

Slide 14.26

The product life cycle

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Figure 14.2

Sales and profits over the product’s life from inception to demise

Slide 14.27

The PLC as an effective marketing tool

• The PLC can be applied to product classes as well as styles, fashions and fads. • The PLC will reflect these aspects in the length and type of PLC as illustrated:

Slide 14.28

The PLC as an illustrator

Ex: nordisk (ljust trä) Ex:Kostym Ex:Platåskor

Figure 14.3

Marketers need to understand and predict style, fashion and fad

Slide 14.29

Product / concept development stage

• Product concept converted into meaningful consumer terms of a product image.

• Concept tested to ascertain commercial appeal.

Slide 14.30

Introduction stage

– The phase where the new product is distributed and made available for purchase.

– The market pioneer has much responsibility when devising the appropriate strategy as it sets the stage for the product’s introduction to the consumer.

– Characterised by high promotional costs.

Slide 14.31

Introduction stage strategies

– Strategies are based upon the product and the dynamics of the market • Skim the market slowly using high price and relatively low promotional activity.

• Skim rapidly by using a high price and high promotion strategy if the market is price insensitive.

Slide 14.32

Growth stage

– The product sales begin to increase rapidly.

– Profit is generated as a result of effective promotional activity and the spread of costs over larger volume of sales.

Slide 14.33

Maturity stage

– The phase where sales growth slows or levels off.

– Marketers then seek to resuscitate or extend the life of the brand by the following methods; • New market development – New usage and application • Product development and modification • Marketing innovation

Slide 14.34

Decline stage

– Sales decline.

– Marketers need to determine the value of retaining the product versus the cost of divesting from the product. – This is weighed up against the market dynamics.

Slide 14.35

Table 14.2

Summary of product life-cycle characteristics, objectives and strategies

Source

: Philip Kotler,

Marketing Management: Analysis, planning, implementation, and control

, 11th edn, © 2003, p. 340. Reprinted by permission of Pearson Education, Inc., Upper Saddle River, NJ.